12 Oct 5 healthcare startup pitches that got it wrong (and why)
Every startup is built on a number of assumptions and undoubtedly some of them will be incorrect. At Dreamit, I’m always stressing the importance of accurately identifying those assumptions and de-risking them as early in the process as possible.
A simple example I like to use involves the e-commerce shoe company Zappos. One of the key assumptions Zappos was built on is the idea that people are willing to buy shoes online. From our 2015 perspective that sounds glaringly obvious but in 1999 that wasn’t the case. The founders tested the market early on and determined there was a demand for the service. It would’ve been a waste of energy and resources to develop the idea if that base assumption had turned out to be wrong.
Too often I see startups pursuing an idea without understanding their most critical assumptions about the market, their competition or the impact of the problem they’re attempting to solve. Entrepreneurs need to be willing to accept advice and react accordingly. This can be particularly challenging among MedTech startups where so many of the participants are accomplished leaders in their field. Intelligent, successful individuals need to be willing to take missteps, recognize them as such, and pivot as necessary.
Below are five examples of startup mistakes I’ve witnessed and why they got it wrong.
1. Understand the real market that represents actual users.
THE PITCH: A phone-based app for gynecologists
“Do you believe there are over 55 million PAP smears conducted every year?” is a promising start to a pitch. Fifty-five million patients routinely receiving a procedure that’s covered by insurance. At $5 per use of the app, the total addressable market should be $275 million a year. So this app could be used on all of those patients? I asked. Well no, only on patients whose PAP smears come back with abnormal results, which happens about 6% of the time. Just like that the market had shrunk to 3.5 million patients and $17.5 million dollars. However, upon further investigation it turned out only half of those patients needed the follow-up procedure the app was meant to replace, and only about a million actually scheduled them. In no time the potential market had shrunk from $275 million to about $5 million, and a marketplace of that size is not appealing to venture capitalists regardless of the technology’s capabilities.
2. Understand your target customer. Remember that the person who pays for your solution is not always the person who benefits.
THE PITCH: A device for a cosmetic correction applied to infants
As the physician detailed how he would bring his product to market, it was clear he was an expert in his field. He thought a great deal about how to better address a common cosmetic defect in infants and was well on his way to a market-ready prototype. But then we started to talk about how the device would be delivered – via busy pediatricians’ offices – and it became clear that he had not taken the time to speak with this critical part of the delivery chain. The physician was convinced that there was a demand for this device and that pediatricians would buy the devices and then be willing to offer a service to parents at a cost of $2000, as it was not covered by insurance. In this model the physicians would be acting in effect as the sales force. A few quick discussions revealed an overwhelming opposition to doing so.